Portugal: Another Significant Miss, And Another 140% Debt/GDP Case Study

Tyler Durden's picture

From Mark Grant, author of "Out of the Box and onto Wall Street"

The next country that could follow Greece out of Valhalla and down to meet Poseidon at Hades gates is Portugal. They trod the path once before but look likely to be headed out on a second journey. The country’s private and household debt are approximately 300% of the total GDP of Portugal and their economy is contracting; around 4.00% by some estimates. While the European Commission estimates a debt to GDP ratio of 111% for this year; the actual data tells another story. Further aggravating a future restructuring are the CDS contracts with a net position of $5.2 billion and a gross amount of $67.30 billion which is about twice the amount of the net exposure for Greece.


Total GDP                                               $208 billion
Short Term Debt                                    $ 99 billion
Long Term Debt                                     $ 96 billion
Troika Loan                                            $111 billion
Government Guaranteed Debt               $ 16 billion
Government Guaranteed Bank Loans     $ 24 billion

Debt to GDP Ratio                                 140%

The European Banks

There has been a lot of talk and discussion that the pressures on the European banks were lessened by the LTRO and this is certainly true in the short term. This also allowed the banks to step up their buying of their national debt and lower sovereign bond yields but this is about to change. The initial injection of liquidity, as I have discussed before, is only effective in the shortest of terms and then a reversal will take place as the easy money gets placed. Without even going into a discussion concerning the fact that these ECB loans will have to get paid back and the difficulties that this will cause or the speculation that the ECB will offer new loans when the old ones mature I can now point to exactly what is happening with the banks on the Continent that are domiciled in the weaker nations. First money is pouring out of these banks like some cascading river pouring down from the mountains as people and institutions want the relative security of banks that are headquartered in the safer countries. Remember that one part of the European construct is that it allows for a free movement of capital and that the big international banks have branches in most countries now. I point specifically to Greece, Portugal, Spain and Italy and to the announcement this morning by the Central Bank of Spain that the deposits in the Spanish banks declined 4.2% from a year ago as they also state that bad loans rose to 7.9%. In fact in the last month reported the Spanish bank outflows were 1.3% which would equate to 15.6% on an annualized basis. So the banks in the periphery are losing deposits, having to comply with the Basel III rules and have balance sheets that are chock full of the LTRO debt and now one can reasonably expect not just further downgrades but possible impairments as the LTRO liquidity does not solve their solvency problems and then as the sovereign debt floor begins to fall away and “real money” is sought; the major international bond buyers are now quite aware that the IMF/ECB/EIB are all senior to their bonds so that higher yields will be demanded for any purchases or some will just stay out regardless.

Everyone points to the problems being pushed out by the ECB loans but I remind everyone this morning that those same loans have a dark side and that is they are now on the balance sheets of those institutions that took outsized portions and that these loans weaken their financial positions so that it is quite possible that further actions by the ratings agencies will cause havoc as many may well lose their investment grade ratings. I also point to the buying of their own sovereign debt which was buoyed by the cash injection but then may well reverse as the austerity measures and the recession in Europe takes its toll on the sovereigns so that the pyramid built by the EU and the ECB may reach a point where it can no longer support its own weight. In the short term the ECB’s action noticeably helped but in the medium term the taste may become quite bitter as the consequences of the LTRO come to the fore. I also can report, though real information is not that easily obtained, that the ECB has begun to make quite sizeable margin calls on many European banks who pledged collateral for the LTRO loans that is rapidly diminishing in value. I advise you to keep a close eye on the line in the ECB’s balance sheet earmarked “Deposits Related to Margin Calls” as a large rise in this number could well take the bloom off the rose and in short order as the European banks have to square up and as the supply of good collateral vanishes into the wilderness

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urbanelf's picture

I think you mean Elysium.

GetZeeGold's picture



Call it whatever you want at this point.


All I know is Portugal puts the P in PIIGs.


Just another shocking surprise......you are all surprised......right?


bigdumbnugly's picture

i always wondered about european vacation destinations.

Sudden Debt's picture

I'm amazed why they don't call it the "U PIGGS"... U as in US (United Snakepits)


bank guy in Brussels's picture

« I believe a crucial facet of what’s unfolding is that employees throughout Wall Street, and global finance more generally, are working diligently to extract as much “money” as quickly as possible before the whole thing blows up. »

- Doug Noland, Credit Bubble Bulletin, 16 March 2012

Yardfarmer's picture

belaboring the obvious. and btw, I think they're more likely to meet the three headed canine Cerberus at Hades gate than Poseidon.and also is that "pyramid built by the EU and the ECB which may reach a point where it can no longer support its own weight" the one with the big eye at the apex? 

Schmuck Raker's picture

He's talking about the upside-down pyramid with the 'I' at the bottom.

HelluvaEngineer's picture

They're buying AAPL too, right? Right?

Dick Darlington's picture

OT: Something that the "market" is ignoring today:

Spain Bank Deposits Decline 4.2% in Jan. From Year Ago (BBG)

Spanish Banks’ Bad Loans Ratio Jumps to 7.91% in January (BBG)


By Sharon Smyth
     March 20 (Bloomberg) -- The Madrid region’s 2011 deficit
will be larger than first forecast because income fell by 1
billion euros ($1.3 billion) as a result of the economic crisis,
Expansion reported, citing Percival Manglano, an economic
adviser of the regional government.
     Madrid was expected to end the year with a 1.13 percent
deficit, which would have made it the only Spanish region to
meet the target of less than 1.3 percent set by the European
Union; the actual figure will be greater, the newspaper said.
     Manglano said he’d be surprised if other regions hadn’t
also suffered revenue declines, Expansion reported.

GetZeeGold's picture



I think we're doing the shocking surprise Spain stuff tomorrow.


HD's picture

Portugal should just save everyone the time and default now or just bend over like Greece and hand over what little gold they have...

The Axe's picture

You know UPS made a huge investment in Europe..strange..against this sovereign backdrop..

GetZeeGold's picture



So did Jon Corzine.


That reminds me........FREE JON CORZINE!!!!


Oh wait......he is.


GetZeeGold's picture



Thanks Schmuck.


All the critics are Schmucks this morning.


Josephine29's picture

The problem with even these numbers is that Portugal's GDP is falling heavily. The article linked to below suggests that Portugal could easily go the way of Greece over the next couple of years as she applies the austerity brake and her economy goes into a depression.



Vampyroteuthis infernalis's picture

go the way of Greece over the next couple of years

I think the more appropriate rephrase would be "go the way of Greece over the next couple of months"

nasdaq99's picture

don't they have a huge gold hoard?

Trader47's picture

they did, but its been vapourised

Schmuck Raker's picture

They lost some of it in boating accidents....long ago, before it was chic.

schadenfreude's picture

That's the second article in two days (former was Belgium) about the abysmal Debt/GDP ratios. What's the hidden agenda of Mark Grant? In fact you could do that calculation with every fucking developed country in the world, so why the bias?

RealFinney's picture

It's part two in his hundred and seventy eight part series: Nations that are drowning in debt.

Trader47's picture

Portugal is desperate for money, they are after everyone for whatever they can get their hands,,,the SOB's just send me CAR tax bill for a car which I sold 6 years ago, which I took back to the UK and sold, as their shitty socialist laws,and red tape, makes it so  hard to matriculate a car,,bunch of morons,, they can kiss my ass!!!

BUNCH OF THIEVES, serves them right, trouble is only common people suffer, not the dickheads in lisbon

To screw people they increased VAT on Electricity from 6 to 23%, and increased unit price by 10%!!!!!!!!!!F--k--s

Great Economists, and Businessmen,,,, someone told me that SOB, Barroso used to have a flower shop, but he use to shut up shop on VALENTINE'S DAY,,need I say more

They never had any growth when the going was good, they are screwed,,now German, Dutch, British Expats living in Algarve, have all been targeted , ROBBED, specialy Germans,, 

Left 2 years ago, back to big brother land, sorry I meant THE UK

Acet's picture

Not to worry, the locals are also being royally screwed. In fact, I do believe emigration has been on the rise recently in Portugal.

That said, the main problem in Portugal is in many ways the same as that in the UK: slimy, corrupt politicians, selling the "we're all in this together" meme, while sacrificing most of their countrymen but preserving previledges for themselves and a chosen elite (and in fact said chosen elite has actually become more wealthy during the crisis).

Similarly, both countries have huge regional discrepancies, with the capitals (London & Lisbon), the place where the elites live, being spared most of the pain while the rest of the country suffers the most.

Last but not least, the public deficit last year was lower in Portugal than in the UK, while total debt is lower in Portugal.

Frankly the UK is not in the same shit-pit as Portugal only because it's much bigger, has it's own currency and is still riding the coat-tails of it's past as an trading and industrial powerhouse.

PS: I'm Portuguese and live in the UK now, but came here only after living in Holland for many years. When I look at all 3 countries I lived in, I see the UK as being far more similar to Portugal (and not in a good way) than it is to Holland.

Schmuck Raker's picture

Portugal is the primer for the A-bomb that is Spain.

"Move along, etc....."

chinaboy's picture

Euro Zone -> ECB kingdom -> Mountain of debt supported by a semi virtual bank

Bellaraphon's picture

Someone explain the math to me on this one.  The sum of all the debts is $346B, which is 166% of $208B GDP.  It seems like every post from this guy has the same issue.  What am i missing?